In a previous blog, we talked about the differences between traditional (“break-fix”) I.T. services and Managed I.T. Services. One challenge we noted is how to distinguish true managed I.T. service providers (“MSPs”) from service providers that operate like a break-fix provider but claim to be an MSP (“Pseudo-MSPs”). Besides asking probing questions about the MSP’s proactive strategy, the price an MSP charges can often be a tell-tale sign distinguishing a mature MSP, such as Digital Boardwalk, from a pseudo-MSP. Despite the many different solutions and services MSPs offer, the market price for equivalent services is actually quite consistent. After all, managed I.T. services is just like any other services industry having fixed costs, labor costs, administrative overhead, etc.
The Not-So-Secret Costs
MSPs approach their pricing model a little bit differently, but the models tend to be linked to either the number of devices or the number of employees (“users”) a business has. For the sake of simplicity, this cost breakdown will be based on a per-user model.
Every MSP incurs licensing costs for the tools they use and the services they resell. Although pseudo-MSPs will offer a small selection of these services, most mature MSPs license and resell the same core solutions:
- Remote monitoring and management
- Endpoint security
- Internet security
- Email threat protection
- Security awareness training
- Managed detection and response
- Intrusion detection and prevention
- Microsoft 365
- Backup and disaster recovery
While the specific solutions and the overall scale of the MSP will influence the individual cost of each license slightly, the median cost to the MSP for these licenses is $39/user/month.
Just like any other service business, MSPs’ largest cost factor is labor. For this reason, mature MSPs do everything they can to keep the total labor hour investment as low as possible by focusing on proactive and preventative measures. No matter how innovative and effective these efforts are, though, there is always a necessary investment of labor hours for each customer.
Based on the industry median salary for support engineers, and an industry average labor hour investment of 1.5 hours per user per month, the payroll cost to the MSP equates to $36/user/month.
Very similar to labor costs required to deliver day-to-day support to customers, there is also a cost for the routine consulting, planning, and auditing that mature MSPs provide. These include:
- I.T. roadmap planning
- Quarterly vCIO meetings
- Sales engineering/solution architecture
- Compliance auditing
- General I.T. consulting
Based on the industry median salary for sales engineers and vCIOs, and an industry average labor hour investment of 24 minutes per user per month, the payroll cost to the MSP equates to $14/user/month.
Managed I.T. Services Pricing
Based on the above cost breakdown, the median fixed cost an MSP incurs to support a customer is $89 per user per month. This cost does not include business overhead, administrative operating costs, or any profits. Additionally, the cost is based on the typical suite of services mature MSPs deliver to their average client. Some customers may require additional solutions such as cloud servers, encrypted email, or specific services for regulatory compliance.
As we stated previously, the market price mature MSPs charge for their services is surprisingly consistent and fair. A typical business can expect to pay their MSP between $150-$250 per user per month for a comprehensive solution including a strong cybersecurity package, cloud productivity tools, backup, and unlimited support from a team of industry experts. Businesses with unique needs, such as co-managed I.T. or specialized regulatory compliance, might pay a little less or more, but a typical small business will usually fall within this range.
When comparing managed I.T. services providers, an easy way to separate the mature MSPs from the pseudo-MSPs is to simply look at the price they’re charging. If the median cost to the MSP is $89 per month per user, and an MSP tells you they can support your business for $100 per user per month or less, there are only a few ways they can accomplish this:
- They aren’t providing all the same services, so their licensing costs are lower.
- They primarily staff entry-level technicians.
- They cap the number of labor hours they provide and charge you extra above that amount.
- They omit routine auditing and other important “back office” tasks that the customer typically doesn’t see.
- They are making up their losses from other areas, such as charging a high margin on equipment sales or shifting some licenses to annually recurring costs to make the monthly fee appear lower.
Regardless of their method, none of it is positive for you as the customer. Over time these cost-cutting measures lead to unnecessary business interruption, security incidents, wasteful spending, inconsistency, lost revenue, and general frustration from poor overall support. The wiser decision is to partner with a mature MSP that prices its services fairly and competitively with the rest of the comparable market. This ensures a long-term, mutually beneficial partnership for both parties.